their craft. Let’s now start with the “what if’s”.
What if Company A paid $2 cash for 1 share of Company B instead of issuing shares? The value of the post-merger company would need to reflect that liquid asset reduction. The real question to pose to those that attack “dilution” is why would paying cash be better when in fact it may be worse. They tend to state that paying a premium is bad for shareholders of the Acquiror. How else is M&A effected then? Only buy paying a premium can the Acquiror typically motivate enough shareholders of the Acquiree to tender their shares to the offer. This is what makes the current M&A involving Aphria so interesting as the Acquiror is offering a discount rather than a premium.
This has been going on for decades/centuries, and this is not new or unique to this industry. But what is unique about this industry is the buzz it has created with average people … so many have made their first equity investments and sadly they turn to the internet for investment advice and tips – forums that most know to filter the content from – Seeking Alpha, Fool, subreddits by industry hobbyists, paid promoters and influencers, social media, etc. There is of course fantastic content to be found in such places … just one needs to know how to filter out the noise.
Speaking of M&A, we were the first publicly available no cost source that I can find that recommended in 2016 the strategy of buying shares of the Acquiree rather than the Acquiror during M&A if the goal is to hold post-merger. For those that owned shares of the Acquiror already and intended to still hold post-merger then selling those shares to buy shares of the Acquiree was pretty much a no brainer. And obviously, those that owned shares of the Acquiree and were intending to hold post-merger should either stand pat or add some shares if they wanted an even board lot when the merger is completed. The risk of course to this strategy is that some deals fall through.
Many others including popular American stock promoters have since discussed this as though it was their own strategy – once again proving indeed that imitation is the sincerest form of flattery. We see that imitation extend to those that have added their own revenue based stock lists and so forth. However, as with most things in life, seldom is the copy as good as the original. DEEPDIVE.ca asked me to write on this very subject (what I refer to as near arbitrage) and this link to that article is useful because it also has a google sheet that you can upload and make your own to track and identify opportunities.
Let’s look at the current proposed M&A between Aleafia (Acquiror) and Emblem (Acquiree). The details of which are per this link; however, for our purposes here what is critical is that every share of EMC will convert to 0.8377 shares of ALEF. That link, as with most others, is reporting on what has happened whereas of course we wrote well before December 19th that our metrics indicated that Emblem appeared undervalued and ideal for investing.
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